PRIVATE economists are forecasting a further contraction of the local economy in the first three months of the year, albeit at a slower rate compared to the slump seen in the previous quarter.
Security Bank Corporation Chief Economist Robert Dan Roces said the Philippines’s gross domestic product (GDP) likely contracted by 5.1 percent in the first quarter of the year.
ING Bank economist Nicholas Mapa, meanwhile, forecasted a softer contraction for the period at 3.5 percent.
The fourth quarter GDP contraction in 2020 hit 8.3 percent, resulting in a full-year contraction of 9.6 percent.
Roces said his forecast is based on the observed improvements in the purchasing managers index (PMI) in the first three months of the year. It is balanced, meanwhile, by the unemployment rate which averaged above 8 percent or still as elevated as of the fourth quarter of 2020.
“Coming into 2021, the deep scarring from the previous year may have continued to soften household consumption with inflation going up and mobility remaining below the pre-pandemic levels [even before the reimposed ECQ], while both imports and exports slowly contracted in the first months,” Roces said.
The country’s PMI, which is a measure of the country’s manufacturing sector, averaged at an index of 52.2 in the first three months of the year.
A country’s PMI is meant to gauge the health of its manufacturing sector. It is calculated as a weighted average of five individual subcomponents. Readings below 50 show deterioration in the industry while readings above the 50 threshold signal a growth in the manufacturing sector.
In April, however, the country’s PMI fell below threshold to an index of 49.0 due to the renewed lockdowns to curb the rising Covid-19 cases.
Mapa echoed this view, saying base effects and the manufacturing sector buoyed the economy at the start of 2021. What weighed on the economy, Mapa said, is the still-timid household consumption during the period.
“Domestic consumption remains one of the key sectors of the economy and we expect this sector to have been challenged at the start of the year. Labor market data recently released showed unemployment improved slightly by March but was for the most part still elevated compared to year-ago levels,” Mapa said.
“High levels of both unemployment and underemployment translate to depressed consumption all the more compounded as inflation rose to 4.5 percent in the period. Consumer confidence remains deep in the red and this will be telling in the coming months,” he added.
For the coming quarters, Roces said growth is expected to “improve gradually” on rising business and consumer confidence, likely from a wider vaccination rollout and infrastructure spending.
“Elections spending should also play some part, although the pandemic may present a shift in how this type of spending is conducted,” Roces said.
Both economists, however, warned that the resurgence of Covid-19 cases is a solid threat to the recovery of the Philippine economy.
“The reimposed lockdowns in 2Q21 may complicate the overall growth picture, and the Philippines is likely to miss the 6.5 to 7.5 percent GDP growth target this year after lockdowns,” Roces said.
“We can see first-hand the impact of these lockdowns on the economy with the latest April PMI manufacturing index slipping sharply back into contraction at 49.0 after a string of expansion. Meanwhile, the gains on the labor market front will likely be short-lived as factories shutter and the services sector takes a beating yet again,” Mapa said.
“The services sector employs the majority of our work force while also mirroring household consumption, and should this sector be down, we can be sure that household spending will suffer as well,” he added.
“We will still see positive growth on a year-on-year basis by the second quarter but we may have to pare down our expectations,” Mapa further said.